According to its export strategy for the 2005-2010 period, Vietnam’s export revenues may reach US$270 billion with a stable growth rate of 12.5 per cent. It is possible to say that with a rapid development of enterprises and impacts of Vietnam’s accession to the World Trade Organisation (WTO), Vietnam’s export activities will certainly witness more rapid developments.
Enterprises’ demand for forecasting risks in export transactions will increase. However, the Decision 133/TTg issued in 2001 by the Prime Minister on export credit assistance seems to have been outdated and does not meet the requirements of the WTO.
Under the decision, the Government provides assistance to enterprises exporting goods within a list of goods for encouragement, which is issued each year.
Ineffectual decision
Credit assistance for enterprises is mainly implemented by providing them soft loans with interests equal to 80 per cent of interests of the State’s development investment credit. After four years’ implementation of the decision, the Development Assistance Fund (DAF) has provided loans of over VND 30,000 billion, helping enterprises improve their competitiveness on the market, thus contributing significantly to Vietnam’s export achievements. However, the implementation of the decision seems to have been ineffectual. Firstly, a list of goods of encouragement lacks stability. Furthermore, the issuance of the list is often later than the provision of export credit assistance, thus hampering production and business activities of enterprises. According to enterprises, capital from the fund fails to meet their demand. A survey shows that enterprises want to borrow more for developing their export activities. Many enterprises have complained about the provision of loans according to export contracts and proposed a new mechanism with credit limits to reducing procedures for enterprises to get loans. Due to constraints in getting soft loans from the fund, enterprises have to find other sources, including commercial banks, and other credit institutions, to have adequate capital for implementing their export contracts. To get loans, enterprises have to complete many procedures and it takes them a long time to do the job. At the same time, requirements for guaranteeing loans are barriers to enterprises’ access to soft loans. Most enterprises are small and medium-sized with little assets, so they cannot borrow from DAF or get little loans from the fund. Also, mortgage assets are often under-valued, so it is difficult for enterprises to access loans.
New export credit policies suggested
Under the Decision 133/TTg, short-term export assistance credit include soft loans, bidding and contract guarantee. In fact, enterprises have only concentrated on getting soft loans. Short-term export assistance credit via the DAF system in the 2002 - 2005 period gained a growth rate of 15 per cent per year. Meanwhile, other assistance forms, such as bidding and contract guarantee have yet to be implemented. This proves the attraction of soft loans. Enterprises have tended to seek opportunities to borrow directly instead of using indirect assistance forms. Therefore, the Government should continue to expand credits for exporters in more flexible forms. Also, loans for importers should be added to help local exporters. Accordingly, foreign importers should be provided with loans to pay directly to Vietnamese exporters. This allows exporters to be paid immediately without worrying about any payment risks with importers.
The Government should consider developing export credit insurance. This is popular internationally, but has not been applied in Vietnam yet. The survey results show that Vietnamese enterprises don’t yet understand clearly the benefits from the service for their export activities. In addition, many enterprises have tended to maintain their relationship with traditional importers. However, as the Vietnamese economy has integrated more deeply into the world economy, it is clear that enterprises have to expand their export markets and compete fiercely against foreign rivals. Therefore, the demand for export credit insurance has increased. The Government should consider applying the service in the coming time.
Instability in a list of goods enjoying export assistance credit is also a barrier for enterprises. The issuance of an annual list produces an effect to enterprises’ balance of their capital for long-term production and export plans. Furthermore, the issuance of the list is often implemented later than it is required. The Government should consider issuing a list for between three and five years to ensure stability of policies, thus freeing enterprises from worries about policy changes. At the same time, the decision’s beneficiaries should be expanded in a manner of indiscriminating enterprises of various economic sectors. Under the Decision 133/TTg, only Vietnamese enterprises are subject to getting soft loans via DAF. However, when Vietnam joins the international playground, a discriminatory treatment for enterprises will no longer exists. The Government, therefore, should consider issuing policies to help enterprises from all economic sectors get access to export assistance credit.
Under the regulations of WTO, many export assistance policies of Vietnam, such as export bonus, import-substitution subsidies, or short-term export assistance credit implemented by DAF since 2001 will be unable to exist. Therefore, a renewal of export assistance policies of Vietnam via DAF should be considered to meet the regulations.
It takes enterprises a long time to transact with the fund, Do Thi Nhung from the State Bank of Vietnam
In 2004-2005, DAF provided loans of over VND 1,000 billion for building and exporting five ships of 53,000DWT. However, assistance remains simple, mainly concentrating in providing soft loans for enterprises. Vietnam has yet to develop assistance forms in line with the international practice such as assistance of import and export banks, export insurance, and loans for importers. With such constraints, the fund has not met the demand for credit and other banking services for exporters yet. One of the clearest shortcomings is that the fund has ye to provide payment services, so it is difficult for it to manage sales revenues to get their debts back. At the same time, experts have to spend more time, making transactions with DAF for credits and commercial banks for payment.
Conditions for loans’ guarantee should be loosened, Nguyen Thanh An, director of a coffee export private enterprise
I think that the regulation that exporters have to have at least 30 per cent for mortgaged assets for loans being their own assets or 100 per cent of mortgaged assets belonging to the third guarantee party, is too difficult for small and medium-sized, newly-established enterprises or co-operatives. Usually, the enterprises do not have enough assets to guarantee their debts. In the other hand, many enterprises have had their financial reports audited, should DAF consider loosing conditions for guaranteeing loans by providing loans without mortgaged assets or using assets formed with loans as mortgage, for effective projects and those exporters with transparent financial status, who can pay debts and interests in a timely manner.
The fund model is no longer suitable with the international integration roadmap, Nguyen Anh Tuan, director of the Thai Binh Duong Legal Firm
The fact shows that export assistance directly via soft loans is no longer suitable with conditions for Vietnam’s WTO accession. The renewal of financial system for export assistance and export assistance via DAF should be in accordance with what the Vietnamese Government has been committed to do with the international community during talks about Vietnam’s WTO accession. I think that policies should be built with a harmonisation of national interest and international practice. The Government should consider carefully so as to make sure that new policies would not violate the regulations but it should take advantage of what the international practice allows to provide assistance to local enterprises, helping them improve their competitiveness after Vietnam joins WTO.
Development Bank will be launched soon, Nguyen Van Quang, deputy director of DAF
So far, the provision of soft loans via DAF is no longer suitable with the international practice. Also, the fact that DAF has not joined the payment system yet is another shortcoming. Theoretically, DAF can join the payment system, but after five year, this has not occurred yet. This costs not only enterprises but also DAF due to the fact that all activities, ranging from money transfer, disbursement, and loan call-in are implemented via an intermediary commercial bank. This has created risks for the management of enterprises’ payment and debts of the fund. Therefore, the Ministry of Finance has submitted a project on converting DAF into the Development Bank to the Government.
If the project is implemented, enterprises will no longer have to make transactions with two agencies to get and pay loans. As far as I know, the project submitted to the Prime Minister has been approved and assigned to the Ministry of Finance and the Ministry of Trade for finalisation. To prepare for a new model, we are preparing necessary conditions, such as finalisation of legal documents for investment and export loans and other assets before conversion.
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